Small is the next BIG for the fund industry


Did you know that there are 9 “small” states and union territories which represent perhaps the biggest growth opportunity for the fund industry and its distributors? Did you know that there is one large expanse in the country straddling four large contiguous states which perhaps represents the most promising area for fund houses and distributors to consider branch expansion?

Read on to understand market opportunities unearthed by this Deep Dive analysis on state-wise wealth.


The objective of this Deep Dive analysis is to provide pointers to the fund industry and its distributors on where untapped low hanging fruit seems to exist in abundance. States that are wealthy (high per capita bank deposits) with low MF penetration (low MF holdings per capita) qualify as the lowest hanging fruit to pick for the next level of industry growth.

The methodology

The state-wise deposits were extracted alongside population, the per capita deposit provides the average deposits held per person. Based on this factor, the states are categorized / ranked with respect to their wealth – with deposits per capita taken as a proxy of overall wealth in each state. Mutual fund AUM per person becomes the other factor which indicates the extent of mutual fund penetration (on a standalone basis). The MF holdings per capita when expressed as a percentage of deposits per capita for each state, gives us an indication of relative penetration levels of MFs.

The Results

The results from the exercise conducted is tabulated below –


Tier I – wealthy states

States with deposits per capita greater than Rs. 2 Lakh has been categorized as Tier I states. These are the richest states with highest deposits / population which warrant high mutual fund penetration. Out of the 18 States which fall within this category, only 6 States have a penetration greater than 10%, this despite the scope for a much higher potential. The States which have garnered highest MF exposure are New Delhi, Goa, Maharashtra, Haryana, Karnataka and Gujarat. 3 out of the remaining states have a penetration greater than 5% but lower than 10% - Chandigarh, Sikkim, Tamil Nadu. The remaining 9 states have lower than 5% penetration – Daman & Diu, Lakshadweep, Pondicherry, Kerala, Punjab, Himachal Pradesh, Andaman and Nicobar, Uttarakhand, Dadar and Nagar Haveli.

A common trait across all these 9 very wealthy states with very low MF penetration is that they are all geographically small. Small is then the next BIG opportunity for the MF industry – these states may be small in absolute terms, but wealth (bank deposits) per person is substantial and MF holdings per person is abysmally low. It seems to make eminent sense for fund houses and distributors to turn their attention to these often ignored “small” states to go after low hanging fruit that’s there to be picked.

Tier II – moderately wealthy states

This category represents states where the deposits / person falls > Rs. 1 Lakh and < Rs. 2 Lakh. 12 States / union territory fall within this category, out of which there is not a single state where the mutual fund penetration (as a % of deposit) is greater than 10%. There are 2 states – West Bengal and Andhra Pradesh – which have mutual fund penetration of greater than 5% (but less than 10%). The rest of the 10 states - Arunachal Pradesh, Jammu and Kashmir, Mizoram, Meghalaya, Orissa, Jharkhand, Tripura, Telangana, Chhattisgarh and Nagaland have less than 5% mutual fund penetration. Many of these states are large in an absolute sense (total deposits > Rs. 5 lakh crores) and still have MF penetration in single digits – these include Telangana, Andhra Pradesh, Orissa and West Bengal. That all of them are contiguous means a fairly vast geography where higher fund house presence and more distributor development activities can result in significant industry growth in the years ahead.

Tier III – Not-so-wealthy states

There are 6 states which fall within this category where deposits / person value is < Rs. 1 Lakh. There are 2 states where the mutual fund penetration (AUM as a % of deposits) is greater than 5% - Rajasthan, Uttar Pradesh. The laggards in this segment are Madhya Pradesh, Assam, Manipur and Bihar which have < 5% mutual fund penetration.


There are only 6 states which have MF holdings as a percentage of deposit holdings in excess of 10%. All of them happen to be in the wealthy states category. While the entire country therefore represents a vast under-tapped opportunity, businesses will need to prioritize where they will allocate limited resources to fuel the next round of growth. We hope this table gives fund houses and distributors a quick sense of where the best near term opportunities lie, to enable them to direct their resources meaningfully to pick at least all the low hanging fruit that’s still waiting to be picked.

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